2018-2019 Pop Goes The Debt Bubble

After the 2008 financial crisis, Fed Chairman Ben Bernanke invoked Milton Friedman’s theory that a helicopter drop of money could prevent a collapsing credit bubble from becoming a Great Depression.

When credit bubbles burst, defaulting debt and disappearing demand cause the velocity of money to plunge; and, in 2008, Bernanke resorted to Friedman’s untested theory hoping to prevent the US economy from collapsing as it did in the 1930s.

Velocity of Money

Friedman’s helicopter drop of money increased US bank reserves an extraordinary 65 times, i.e. from $13 billion to almost $850 billion; adding unprecdented trillions of dollars to the Fed balance sheet. Between 2008 and 2014, Fed liabilities ballooned from $850 million to $4.4 trillion, mirroring in nominal terms the exponential growth of the US national debt during the Reagan presidency.

Friedman’s helicopter drop, however, proved to be a band aid, not a solution. Central bankers hoped the historic helicopter drop of $4.4 trillion would return the velocity of money to pre-crisis levels and reverse deflationary forces set in motion by the collapse. It didn’t.

Deflation is the pathological slowing in the velocity of money
Professor Antal E. Fekete

At best, the bankers’ helicopter drop bought time, i.e. ten years (2009-2019). At worst, it created the largest asset bubble in history in stocks, bonds, commodities, real estate, and cryptocurrencies..

In December 2018, the massive asset bubble began to deflate, confirming a prediction made in December 2014 by Richard Hoey, chief economist at BNY/Mellon,:

I’m worried about 2018. I think about that time everything will come due. We’ll have wage inflation, the Fed will have to tighten hard…and the oil price collapse in 2014 will give you the oil price spike of 2018…Most of our recessions are triggered by oil price spikes…The big recessions always come from the big spike in oil prices. I’m not worried about 2015. I’m not worried about 2016…not too much about 2017. I think the bill comes due 2018 but that’s too far in the future to worry about now. Don’t Worry About The Us Economy…Until 2018Richard Hoey, CNBC Interview, December 31, 2014

Richard Hoey was right about 2018. On December 17, 2018, CNBC reported:

The stock market is on pace for its worst December since the Great Depression. Both the Dow Jones Industrial Average and the S&P 500 are on pace for their worst December performance since 1931 when stocks were battered during the Great Depression.

On December 18, 2018, The Financial Times wrote:

Sharp stock market sell-off on Fed rate rise…Shares tumbled after the US central bank lifted the target range for the federal funds rate by another quarter point to 2.25-2.5%, in a unanimous decision, and suggested it was not done raising rates.

THE COLLAPSE OF FIAT PAPER MONEY

Today’s crisis will be even more devastating than the Great Depression. In 2018, currencies are no longer anchored to gold as they were in the 1930s. Not only will economies collapse, so, too, will fiat paper money.

According to the founder of the world’s largest hedge fund, Ray Dalio, the US dollar could soon fall as much as 30% which could leave it looking like the Turkish Lira…the US might have to go through a similar type of inflationary debt crisis which is currency being suffered by emerging market economies like Argentina and Turkey. Triple-digit inflation has taken countries around the world by storm in 2018. Argentina, Iran, Turkey, Sudan, Yemen and Zimbabwe currently have annualized inflation at the hundred and 111%, 187% 38%, 127% 27% and 170%...
TheGoldTelegraph, Is the US dollar on the verge of a major currency crisis?December 10, 2018

Shortly after the 2008 financial crisis, I talked with Sandeep Jaitly about when the financial endgame might begin. At the time, in April 2009, we agreed it was not possible to then know when the massive imbalance of credit and debt would self-correct, i.e. self-destruct.

Today, we know. In 2018, the historic $100 trillion asset bubble has started to collapse and, in 2019, Sandeep, myself and Durant Schoon will offer a securitized crypto token, Wampum, designed to profitably survive the collapse of the fiat asset bubble, to investors in a securitized token offering, a STO.

Information regarding Wampum is posted at https://bullionplay.com/directors-thoughts/ as is the background of the project, see www.bullionplay.com.

In September 2018, Ray Dalio described financial markets as ‘being in the seventh inning’. Two more innings and the game’s over. Of course, there’s always the possibility of overtime and if you want to bet on it, go ahead.

About Darryl Robert Schoon
In college, I majored in political science with a focus on East Asia (B.A. University of California at Davis, 1966). My in-depth study of economics did not occur until much later.

In the 1990s, I became curious about the Great Depression and in the course of my study, I realized that most of my preconceptions about money and the economy were just that - preconceptions. I, like most others, did not really understand the nature of money and the economy. Now, I have some insights and answers about these critical matters.

In October 2005, Marshall Thurber, a close friend from law school convened The Positive Deviant Network (the PDN), a group of individuals whom Marshall believed to be "out-of-the-box" thinkers and I was asked to join. The PDN became a major catalyst in my writings on economic issues.

When I discovered others in the PDN shared my concerns about the US economy, I began writing down my thoughts. In March 2007 I presented my findings to the Positive Deviant Network in the form of an in-depth 148- page analysis, " How to Survive the Crisis and Prosper In The Process. "

The reception to my presentation, though controversial, generated a significant amount of interest; and in May 2007, "How To Survive The Crisis And Prosper In The Process" was made available at www.survivethecrisis.com and I began writing articles on economic issues.

The interest in the book and my writings has been gratifying. During its first two months, www.survivethecrisis.com was accessed by over 10,000 viewers from 93 countries. Clearly, we had struck a chord and www.drschoon.com , has been created to address this interest.

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